A game designer's look ahead

The Internet of Books. Can ebooks double book profits?

E-readers are the biggest change to the book business in 500 years. Over the next 20 years, as e-readers get better and cheaper ($399 in 2007 to $69 in 2013), they will replace paper books, just as over the past 20 years digital cameras replaced film. PwC projects that the crossover point (in the USA) will come in 2017.

Today, the average ebook costs $6.65, $3.21 cheaper than the average new book ($10.86), so it takes 36 books to offset the average $114 cost of an e-reader.

Lowering the cost and friction of book purchases (from a trip to a store to a click of a button), allowing readers to carry their entire libraries in something the size of a small book, and removing the piles of books that remind us we’ve already got too many books, must increase buying and reading of books. How much? Don’t make the same mistake as McKinsey.

McKinsey here is statistically illiterate, confusing correlation and causation. They state “Adding a device increases reading” but all they show is that people who have purchased more devices spend more time reading. I bet those owners spent more time reading before they purchased a reading device; in fact, that’s probably why they purchased the device!

At least their friends at Bain have taken statistics. They asked the right question, have ebooks changed your reading habits? 44% said they consume more books (and only 8% consumed less). We know both that e-readers have increased book consumption and that e-reader owners read quite a bit more than average. We don’t know how many more books are consumed after purchasing tablets or e-readers.

Piracy – the downside of ebooks?

Excluding countries without effective copyright enforcement (like Russia, with 92% ebook piracy), books are rarely pirated. While digital books are easy to pirate, the dominance of the walled gardens of Amazon Kindle, the Apple iPad, and the Barnes and Noble Nook, has kept piracy to an acceptable level of around 30%. Perhaps as important, since you can only read a couple books per month(unlike music where you can listen to thousands of songs) the financial incentive to pirate (or be a pirate) is low. Finally the availability of free public and school library books removes the philosophical justification for book piracy.

All-you-can-eat books?

Since all-the-books-you-can-read by definition provides the maximum possible revenue per customer, why aren’t books offered all-you-can-consume, like Spotify or cable bundles with hundreds of stations of TV? While physical books can’t be offered in unlimited quantities for a reasonable price (except from a library) ebooks don’t have this limitation. Scribd ($9/month), Oyster ($10/month) and Entitle ($15-$28/month) are start-ups offering books (though not from Hachette, Macmillian, Penguin Random House or (except Entitle) Simon & Schuster, 4 of the 5 big book publishers) by subscription. Perhaps more relevant, Audible (bought by Amazon) does offer a good selection and big (though not unlimited) portion of audiobooks for $23/month. Truly all-you-can-eat audiobooks might cost (and produce optimal revenues) at around $49/month.

If subscription is better, why hasn’t it caught on? It takes years to negotiate the contracts required to enable new business models. Copyright holders must take care selling licenses to their property. For instance while Netflix has spent years negotiating, given its $8/month price point, it will never have the breadth of offerings as $60/month cable subscriptions. Any single discount tier provider will be relegated to content that has no better monetization options.

Clearly it’s high time for the book giants to try to take control over their own destiny, like Disney/ABC, Fox and NBC did when they created Hulu in 2007. In fact they are late; books and audiobooks are far closer to being dominated by Internet delivery than TV shows are. Eventually both TV and books will be offered over the Internet at varying subscription tiers, with higher priced tiers offering higher valued content.

The Internet of Books

The highest tier is the most interesting: The ability to search and read (and cross-reference) all books on any connected device, that is “The Internet of Books”. This would be an awesome educational or research tool, worth far more than what the best book customers (book whales) spend on books.

How much would subscription to “The Internet of Books” cost?

$99/person per month would be a safe starting price for a search-and-read-any-book subscription. Testing might yield an ideal price (maximum profit for the book industry) in the $49-$79 per month range. Since ebooks have virtually no inherent cost, any revenue increase should profit boost to the book publisher and author. Three million one-percenters might consider being able to access the Internet of books as important as sending their children to private schools. Businesses might want their top 1% employees to be able to instantly search and read all relevant educational, technical and business books. Graduate schools might consider it a necessity for all their students and faculty. If 1% of Americans bought $1000/year subscriptions to all books, that $3B would more than double the profitability of the entire trade book industry.

Question: Can ebooks double book profits?Answer: Yes. Access to “The Internet of Books” would be both attractive and valuable, a far better business than selling one book at a time. Other less expensive (and less useful) subscription options would further increase book profits:

Netflix and Spotify prove that subscriptions are a better business than one-off purchases. (Too many choices inhibits purchasing.) Since ebooks (and digital video or music) have almost no intrinsic costs, if you sell more, you (author, publisher, distributor) simply make more money. 30% of ebook buyers are ready now:

I want “The Internet of Books”. You do too, big book publishers. Let’s do it!